Wings Magazine

Price, lack of industry benefits reasons behind F-35 decision

Dec. 10, 2012, Ottawa - The sudden and severe jitters among Conservatives over their stealth fighter program are due to sticker shock as well as doubts that the country's aerospace industry might not reap as many benefits as initially trumpeted, according to government sources.

December 10, 2012  By The Canadian Press

Skepticism about the future of F-35 program spiked after an independent analysis, written by accounting firm KPMG, determined
that the full life-cycle cost of the F-35 would be far above $40 billion rather than $16 billion originally set by the government.

The eye-popping price tag ballooned after auditors determined a total in-service life of 42 years for the fighter-jet, which is at
least a dozen more than both the auditor general and the parliamentary budget officer estimated in their costing.

The longer a plane is flying, the more expensive it becomes to maintain and sources say auditors at KPMG settled on a service life
of four decades because that's how long the Canadian military has been keeping aircraft on the flight line.

A companion study that is due to be released next week at the same time as the KPMG report assessing promised industrial benefits
or economic spin-offs from F-35 production may provide further headaches for the government.


When the Harper government first signalled its intention to buy the Lockheed Martin-built F-35 Lightning II, it proclaimed that
Canadian aerospace companies would benefit by receiving as much as $12 billion in manufacturing or spare parts contracts over the
lifetime of the project.

Industry Canada quietly rowed those expectations back to US $9.85 billion last spring in the wake of Auditor General Michael
Ferguson's scathing assessment of how the program has been managed thus far. The report accused National Defence and Public Works of not doing their homework, low-balling the cost and to a lesser extent, exaggerating the benefits.

The benefits analysis will apparently show Canada struggling to reach the US $9 billion mark over the decades in the face of stiff
competition from other nations whose participation in the development of the aircraft give them preferential access to the U.S. manufacturer's supply chain.

To date, 70 Canadian companies have secured over US $435 million in contracts on the development and initial production of the

The looming politically-charged reports and speculation that the Harper government was prepared to pull the plug on the program led to heated calls on Friday by the Liberals for Defence Minister Peter MacKay to either resign or be fired.

"The government has consistently misled Canadians about the true cost of this aircraft,'' said interim Liberal leader Bob Rae.
"They've misled Canadians about their degree of oversight and their readiness to deal with this situation.''

The New Democrats' defence critic's fury went further, with Jack Harris saying the entire government should resign and put the
question of whether to buy the plane to voters.

"They've demonstrated their incompetence in a $40-billion-plus project,'' the Newfoundland MP said. "They want to have an F-35
airplane that they want our children to pay for the next 35 years. This is totally unacceptable.''

Both parties were reacting to the speculation over the ever-changing cost estimates.

When the Tories first floated their lifetime estimate of $16 billion, it was based on 20 years of ownership, but did not include operating and maintenance figures.

The auditor general looked at figures over 30 years and came up with a $25 billion price tag. The parliamentary budget officer
estimated costs of over $29 billion.

Defence officials look on projections beyond two decades with skepticism.

"Going beyond 20 years is considered too high-risk to ensure that the value in contracting with industry would be sustained, or
the costs would be going beyond the 20-year mark,'' former treasury board official Michelle d'Auray told the House of Commons public accounts committee on May 1, 2012. "So that, for us, is considered to be reasonable, and as the deputy minister of National Defence indicated, all of the submissions to date have been presented to the Treasury Board have used a 20-year cost estimate.''

There was also speculation the government was prepared to scrap the F-35 deal and move to an open competition to replace the air
force's aging CF-18s, which are due to retire by 2020.

But government sources say that point has not been reached yet.

The secretariat would be the one making that call and it hasn't begun its long-awaited options — or market — analysis of what the
country's air force might need and what aircraft are available.

That analysis is expected to get underway within 10 days with a help of an independent committee of up to five people who are
charged with ensuring that all options are considered.

The committee will include retired Lt.-Gen Charles Bouchard, who led the NATO mission in Libya, Keith Coulter, the former head of the Communications Security Establishment, former federal comptroller-general Rod Monette, University of Ottawa professor Philippe Lagasse, and at least one other member.

The terms of reference for this options analysis say the government will "review and assess fighter aircraft currently in production and scheduled for production.''

That means the F-35 is still in the running.

A spokeswoman for Lockheed Martin said the company has had a close relationship with the Canadian military for 50 years and
expressed confidence the deal was still on solid ground.

"We continue to look forward to supporting the Canadian government as they work to provide their air force 5th generation
(fighter) capability for their future security needs,'' Laura Siebert said in an email.


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